E-INVOICE

E-Invoice System: What You Need to Know

Following the announcement made by the Inland Revenue Board of Malaysia (“IRBM”) in May 2023 regarding the introduction of e-Invoicing in 2024, the IRBM has released updated e-Invoice Guidelines (Version 2.3), Specific Guidelines (Version 2.1), and SDK (Version 1.0) on their website on 6 April 2024. 

According to the government, the implementation of e-Invoicing (also known as digital invoicing) aims to support the growth of Malaysia’s digital economy and improve the efficiency of the country’s tax administration. 

It involves replacing traditional paper-based invoices with e-Invoices, which will streamline financial transaction recording and enable real-time data collection.  

To encourage the growth of the digital economy, the Government plans to implement e-Invoicing in stages. This phased approach is designed to enhance the efficiency of Malaysia’s tax administration management.

What are e-Invoices?

An e-Invoice or digital invoice serves as digital evidence of a transaction between a supplier and a buyer. 

It removes the need for paper invoices by allowing businesses to produce and retain machine-readable, digitized iterations of invoices, simplifying billing and payment procedures. e-Invoices will adhere to IRBM’s designated formats (XML, JSON) and must include 55 fields (37 mandatory). 

Why Implement e-Invoice in Malaysia?

The government aims to bolster the growth of the digital economy and improve the efficiency of Malaysia’s tax administration through e-invoices. This initiative aligns with the goals of the Twelfth Malaysia Plan, which emphasizes enhancing the digital services infrastructure and digitizing tax administration.

With the implementation, the Malaysian government intends to:

• Assists businesses in saving time and resources on tax compliance by digitizing invoice processes and simplifying record-keeping and aligning with the government’s goal of enhancing efficiency in tax administration.
• Enhance ease of business for entities in international trade by implementing e-invoicing to facilitate streamlined processes and communication.
• Transitioning to e-invoicing helps Malaysia avoid paper invoicing, minimizing the risk of tax leakage and ensuring the integrity of financial transactions.

What is the e-Invoicing Implementation Timeline in Malaysia?

The commencement of e-Invoicing implementation in Malaysia is slated for 1st August 2024, initially targeting taxpayers with an annual turnover or revenue surpassing RM100 million. 

From 1st January 2025, the system will include taxpayers with annual turnovers or revenues ranging between RM25 million and RM100 million. Eventually, by 1st July 2025, e-Invoicing will be compulsory for all Malaysian taxpayers, irrespective of their annual turnover or revenue.

• 1 August 2024 – Taxpayers with annual turnover or revenue >RM100 million
• 1 January 2025 – Taxpayers with an annual turnover or revenue of more than RM25 million and up to RM100 million
• 1 July 2025 – All taxpayers

What are the e-Invoicing Transaction Types?

e-Invoicing or digital invoicing is applicable to all taxpayers engaged in commercial activities in Malaysia, enabling real-time validation and storage of Business-to-Business (“B2B”), Business-to-Consumer (“B2C”), and Business-to-Government (“B2G”) transactions, as well as specific non-business transactions among individuals. 

In some B2C transactions where end consumers do not require e-Invoices for tax-related purposes, suppliers have the option to issue regular receipts/invoices following existing procedures. 

The below documents must be issued in electronic format under Malaysia e-Invoice:

Invoices

Typically utilized to document transactions between a supplier and buyer, invoices also include self-billed invoices used for expense tracking purposes.

Debit notes

Unlike credit notes, debit notes are generated to document additional expenses associated with a previously issued e-Invoice.

Credit notes

Issued by sellers to rectify errors in previously issued e-Invoices, credit notes primarily aim to reduce the original invoice’s value without refunding money to the buyer. They are commonly employed to address errors, provide discounts, or account for returned items.

Refund notes

A refund e-Invoice serves as an official record issued by a seller to document refunds issued to the buyer.

Process Flow of e-Invoice in Malaysia

Following a transaction, the supplier generates an e-Invoice and submits it to IRBM via the MyInvois portal or through e-Invoicing software using an API. Subsequently, the invoice undergoes validation by IRBM and notifications are sent to both the supplier and buyer. 

Once validated, the supplier is responsible for providing the e-Invoice, complete with a QR code, to the buyer.

How to Report e-Invoices in Malaysia?

In Malaysia, companies have two options to report digital invoices:

MyInvois Portal hosted by IRBM

Accessible to all businesses, but most suitable for Micro, Small, and Medium-sized Enterprises (MSMEs) due to its capacity limitations.

Application Programming Interface (API)

Available in XML or JSON format, requiring technological investment and system modifications. Ideal for large businesses with significant transaction volumes.

Is Your Organization Ready for e-Invoicing?

To assess your readiness for e-Invoicing,  ask yourself the following questions:

• Have the requirements been communicated with different stakeholders, and are they aligned with the implementation?
• Is e-Invoicing mandatory for your company, or would your company prefer to voluntarily adopt e-invoicing?
• Assess the compatibility of your existing ERP system and its potential integration with e-invoicing software.
• Are your employees adequately trained to manage various aspects of e-invoicing?

In a Nutshell

The adoption of e-invoicing signifies a significant advancement for Malaysia’s business environment, offering numerous advantages for businesses, taxpayers, and the overall economy. 

Through the adoption of digital invoicing methods and the utilization of technological innovations, such as invoice software, Malaysia is positioned to explore fresh avenues for growth and prosperity in the digital era.  

Moreover, as Malaysia adopts digital invoicing, businesses are set to enter a transformative phase marked by digitalization and improved efficiency. 

All in all, switching to e-invoicing and adhering to regulatory requirements enables organizations to advance towards enduring growth and competitiveness in the digital era.